Nerds of Steel

Nucor announced Q2 2008 results today. EBITDA per ton was $185, up from $144 in Q1. Check it out in the Nerds of Steel earnings spreadsheet. The increase was a result of higher steel prices and the impact of the David J. Joseph acquisition in February 2008.

Nucor’s balance sheet improved markedly as a result of the recent share offering. At the end of Q2, the company had cash of $2.8 billion vs debt of $3.3 billion.

A reader called NanoSteel posted a comment recently asking if we knew the total value of M&A activity in the global steel industry for 2007. One source is an annual publication by PWC which compiles transactions in the global metals industry.

According to the PWC there were 249 deals in the global steel industry in 2007 worth $61 billion. Comparable numbers for 2006 were 236 deals worth $79 billion. So more deals, but on average smaller deals. This is consistent with what we observed last year - consolidators continue to be active but many of the most obvious first stage deals have been done and the next stage of deals will be more creative and reach further into the undergrowth of the global industry.

Severstal North America’s Q1 2008 financial results have been added to the Nerds of Steel earnings spreadsheet. SNA had EBITDA per ton of $171 in Q1 2008 up from $39 in Q1 2007. However, this result includes a $156 million gain from the buyout of a long term electricity supply contract. Without the one-off gain, EBITDA per ton was ($6). The Q1 2008 results also include SeverCorr, which shipped over 300,000 tons in the most recent quarter.

ArcelorMittal reported its Q1 2008 earnings today achieving $157/ton of EBITDA for the quarter, the same rate as Q4 2007. You can compare the EBITDA result against a number of other steel producers on the Nerds of Steel earnings spreadsheet. Or you can see the full set of company reports including video and audio of the webcast on the ArcelorMittal site.

Severstal recently closed its acquisition of the Sparrow’s Point mill owned by ArcelorMittal.  The price paid by Severstal, $810 million, works out to just over $200 per ton of installed steel making capacity.  This is well below what assets have been selling for in North America.  As can be seen in the graph below, the acquisition cost per ton paid for steel making capacity has risen from around $200 per ton when the consolidation process started, to over $1,000 per ton in the last couple years. 

Of course, Sparrows Point was not operating at capacity and generated only $25 million of EBITDA in 2007.  So we’ll have to wait and see whether or not this was a good buy by Severstal.  On the surface, however, $200 per ton for a fully integrated plant on deep water seems like a bargain.